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Staples-Office Depot Deal Is Dead

The proposed $6.3 billion merger of Staples and Office Depot is kaput.

Staples dropped its acquisition plans last night after a U.S. district court judge granted the Federal Trade Commission’s (FTC’s) request for a preliminary injunction to block the sale.

A Staples-Office Depot marriage was similarly derailed 19 years ago by a federal judge at the urging of the FTC’s antitrust attorneys.

This time around, the FTC had argued that the merger of the nation’s two largest office supply chains would violate antitrust laws by significantly reducing b-to-b competition within the office supply channel.

The deal would have created the world’s largest office supply chain with $39 billion in annual sales, and would have provided the best chance to salvage the specialty channel amidst mounting competition from big-box and online discounters, the retailers argued.

“We are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case,” Staples chairman/CEO Ron Sargent said in a statement.

He added that it’s in the best interest of shareholders, customers and sales associates to forego appealing the decision.

Staples must now pay Office Depot a $250 million break-up fee under terms of the merger agreement, and will drop its plans to appease the FTC by selling more than $550 million in large, corporate-contract business.

Related:Staples-Office Depot: The Gloves Are Off

Going forward, Staples, the No. 1 office supply chain, will look to divest its European operations in order to focus on North America. There, it plans to sharpen its game by improving its supply chain; cutting costs; closing underperforming stores, including 50 this year; and competing on price in core categories like office supplies, ink, toner and paper.

For its part, No. 2 office supply chain Office Depot plans to squeeze out any “remaining synergies and efficiencies” from its 2013 merger with OfficeMax, chairman/CEO Roland Smith said.

The would-be partners will formally terminate their merger agreement on Monday.